An Investor’s Guide to Buying Commercial Space
Commercial spaces are purchased for investment purposes. The buyer has opted for this endeavor in the hopes of gaining a maximized Return on Investment (ROI). This process is slightly different from buying regular real estate in terms that it requires an extensively methodic approach and due diligence. An investor cannot just delve into purchasing a commercial space without researching on the acquisition method and viability of the asset itself. Generally, it is believed that when a commercial space can accommodate an increased number of tenants, their returns shall be equally maximized. While this may be an effective short-term solution, it does not guarantee a healthy long-term ROI. Key points to consider while contemplating on the endeavor are-
- High income potential
- Investment security
- Sound appreciation rate
This means that the property should not only yield high income and be a secure investment but also should have increased land and property value. The total process requires a holistic preparation on the investor’s part including risk factor assessment, environmental consideration, legal protection of the asset, traffic conditions of the area, property upgrades and upkeep etc. It may appear to be a complicated process at first glance but the tips below can help a potential investor to easily go on about it:
- Reasons to Invest:
The first step is to identify the investor’s personal motivation to buy a commercial property. When the investor knows what he or she wants to accomplish with the purchase, the property hunting parameters become precise and defined. In business, the ‘why’ always precedes the ‘what’!
- Evaluate Market Offerings:
The term commercial real estate encapsulates a wide range of choices, ranging from retail shops to warehouses, industrial offices to office complexes, large apartment buildings etc. So long as the asset is intended to be used for a business purpose, the property is a commercial space. Naturally, each type of business establishment requires its own mandates of real estate acquisition. This is when the investors need to nail down the ‘what’ of it.
- Ready to go Financing:
Commercial space financing needs to be locked down even before the planning to buy has started. This defines the budget parameters and indicates the feasibility of the endeavor. It is not optimal that an investor should find him or herself in financial shortage after having located a choice piece of property.
- Build the Right Team:
It is imperative that the investor should have the right team working with him or her while purchasing a commercial piece of property. This includes- a good real estate agent, a commercial attorney and even a certified professional accountant (CPA). Investors should also build a rapport with the local authority to gauge risks and build productive connections. These steps will cover that they are on track with legal procedures, tax formalities and overall purchase measures.
- Identify the Potential Property:
Now that the initial steps have been taken, investors need to identify the right property in their intended market. The hunt for a viable property that is in budget and will yield the desired ROI is now going to become much easier. During this search, investors will find properties that may generally seem to be a good investment. However, if it does not serve the investor’s original reason to purchase,then it is not the way to go.
- Your Due Diligence:
Buying a commercial space is not the same as purchasing a residential property. Once the perfect asset has been located, it is time to do the due diligence. Investors now need to run the numbers one more time and double-check the feasibility of the offering. Analyze the risks and compare it with the ROI to see which one outweighs the other. Once all assessments are done, move forward to acquire the asset.
- Close the Deal:
It is time to make the offer. The offer should be made with an inspection plan in place as a contingency measure so that an exit window remains open in case of unwanted complications present in the asset. If all seems well then document review, insurance procedures and minding due diligence should continue. If the asset is a ‘Hot Deal’ with many potential buyers pursuing an acquisition, then this is when the investor’s financing preparation pays-off. Once all formalities have been completed, the investor can close the deal with a glowing feel good factor inside.
It is never enough to say that acquiring commercial real estate is a deeply intricate and tentative matter. The parameters of the entire endeavor vary among the criteria of real estate. The above are simple guidelines to help investors get going, but the purchase of such real estate entails detailed research and planning. But this should not let an investor be deterred from their intent. That’s why they say- take it a step at a time!